Ahead of the one-year Spending Round, set to be delivered by the Chancellor of the Exchequer on Wednesday 4th September, EPI’s Jon Andrews analyses the series of education funding commitments announced by the government so far.

Summary

The Prime Minister’s funding announcement for schools represents a major shift in funding policy with significant increases in the amounts that schools will receive over the next three years.

The announcement lacks detail on how money will be distributed, schools will not get equal share of increases and schools with the least challenging intakes are likely to benefit the most, meaning that some schools are unlikely to see a full reversal of cuts. The teacher pay announcement puts fresh pressure on school budgets and these schools are likely to be disproportionately hit.

It also includes a significant increase in funding for 16-19 education, at a faster (percentage increase) rate than for schools, but only announced for one year. This undoes around a quarter of recent per student cuts.

Additional funding for pupils with high needs is welcome, but funding is some way short of the amount required as estimated by the Education Select Committee, and issues remain with how funding is distributed.

Introduction

It began by reflecting on how unusually quick the process had been. Spending Reviews normally involve months of careful negotiations between departments and the Treasury. Wednesday’s statement was to come less than four weeks after the Chancellor announced his intention to have a one-year settlement. This was not the normal process.

Just as I finished, we got word that the government were going to set out a three-year settlement for schools that evening, and that the Prime Minister would announce it at a press conference populated by child journalists from school newspapers.

The blog may have been immediately redundant, but I was clearly right about this not being the normal process.

During the Conservative leadership campaign, the Prime Minister had committed to significant extra spending in schools to reverse the real terms cuts of recent years – at an estimated cost of £4.6bn a year by 2022.[1] In office, his commitment to that level of expenditure has remained. But, perhaps as expected given the pace of the review and current political uncertainty, we have seen spending commitments that are stronger in big headline grabbing, one might say vote winning, announcements rather than detailed long-term strategic planning.

In this analysis we reflect on what has been announced so far and the implications of the questions that remain.

Analysis

School funding pressures over the last decade

Let us first take a step back and consider the context. That schools have been facing significant financial pressures is now well established. It is a situation that has been subject to numerous debates in Parliament, and in July the Education Select Committee concluded that the effect of education reforms, increases in pupil numbers and an increase in complex special educational needs had “put a significant strain on the education sector”.[2]

The Institute for Fiscal Studies (IFS) found that overall spending on schools (including on sixth forms and support services typically provided by local authorities) fell by 8 per cent, per pupil, in real terms between 2009-10 and 2017-18.[3] In January, the Education Policy Institute published its latest analysis of the state of school revenue balances in England.[4] The analysis showed that the proportion of local authority maintained primary and secondary schools with a deficit balance increased in 2017-18. Nearly 1 in 3 maintained secondary schools had a deficit balance compared with 1 in 12 maintained primary schools. While the proportion of special schools in deficit decreased slightly, those in deficit tended to have larger debts than before.

Significant investment in schools

Without doubt, Friday’s announcement represents a significant increase in school expenditure that will be welcomed by schools. It is an almighty shift in government policy. It seems unlikely that, without the political cover provided by the Prime Minister’s commitment, DfE’s spending review bid to Treasury would have been anywhere near the kind of numbers that have been announced. Taken in aggregate, the IFS say that these amounts are sufficient to reverse the cuts of the last decade.

As ever, however, there is a need to look beyond the headlines of a “£14 billion package” to get a bit closer to what it means for schools and to judge just how generous the settlement is.

Firstly, of course, the fairly common trick of combining multiple years of expenditure together to get to a much larger number. £14bn is the total additional money going in over the next three years, amounting to an addition al £2.6bn in 2020-21, £4.8bn in 2021-22, and £7.1bn in 2022-23 compared to 2019-20. So this is a £7.1bn per year increase in school funding.

Secondly, this is in cash terms. Given the scale of the overall schools budget in England (currently around £45bn), inflationary pressures are significant, and typically between £0.8bn and £1.0bn a year. So just keeping up with rising prices will account for around £3bn of the additional money in 2022-23.

Thirdly, we have rising pupil numbers. The population bulge which began in the early years of this century is continuing to move through the school system. While the number of pupils in primary schools is now expected to be relatively stable for a few years, pupil numbers in secondary schools are going to grow at between 2 and 3 per cent a year. This creates a cost pressure of just over £300m a year, so around £1bn by the third year covered by this announcement.

Even with these pressures, and a further £700m being accounted for by additional expenditure on high needs, this still amounts to a real-terms increase for schools in the region of £2.4bn.

What we need to know now is how that money is going to be distributed.

Levelling up

We do know that DfE are using this as an opportunity to deliver another of the Prime Minister’s commitments, to ‘level up’ school funding – a move that would see the per-pupil minimum increase from £3,500 to £4,000 in primary schools (by 2021/22), and from £4,800 to £5,000 in secondary schools (by 2020/21).

The additional money announced on Friday is more than sufficient to cover the ‘levelling up’ commitment. So it is not the case that it will only be those schools currently below these thresholds that are going to see increases from this announcement, but they are going to take a disproportionate share. As we have set out previously, those that will benefit the most from such a move would be those that do not have the characteristics associated with additional funding under the current National Funding Formula – schools without high levels of disadvantaged pupils, schools that are serving more affluent communities, those without large numbers of pupils with low prior attainment, those without pupils for whom English is not their first language. In short, schools with less challenging intakes.

Teacher pay

Schools have also continued to struggle with teacher recruitment and retention, particularly in secondary schools where pupil numbers are expected to grow but the number of teachers is in decline. Data from the School Workforce Census show dropout rates of young graduate teachers are rising and each year’s graduates are more likely to leave the profession than the previous year’s – 85 per cent of 2017 graduates were still in the profession after 1 year, compared to 88 per cent of 2011 graduates. And that’s of those who joined teaching in the first place, the government continues to miss its recruitment targets every year.

Within this context, the significant increase to teacher starting salaries announced on Monday – to increase the minimum to £30,000 a year, an increase of around 25 per cent in three years – is a welcome and much needed policy shift. But schools will also be mindful that this creates an increased cost pressure on their budgets that will erode some of the increases announced on Friday.

The pressure will need to be met through the increases announced on Friday, but what we do not yet know is how that will be delivered – whether through the schools block of the Dedicated Schools Grant (DSG), or through a separate teacher pay grant. There is a potential interaction with the minimum funding announcement which could exacerbate the effect of moving money to the least disadvantaged schools unless there are changes to the current approach. This is because:

by definition, paying money via the teacher pay grant means taking money out of the schools block since the total amount remains the same;

if funding is distributed via the teacher pay grant rather than the schools block, and follows the approach used previously, it will be distributed according to pupil numbers, not school circumstances and so schools with less challenging intakes would tend to get more than they would have done otherwise;

in the past, the minimum funding levels have applied to core schools funding only, i.e. that received via the schools block (and even then excluding money for premises, growth, and mobility) and funding received via the teacher pay grant will not be taken into account. This means that the money spent on ‘levelling up’ would become a greater proportion of the overall pot (since it will be more difficult for schools to reach the threshold via the formula allocation of the schools block alone);

schools with disadvantaged intakes are likely to feel the greatest pressure from this increase. They tend to have a greater proportion of new entrant teachers, and a higher number of teachers overall.

So how the money is distributed, and whether the previous approaches are adapted, is going to play an important role in which schools gain the most.

16-19 education

The funding squeeze has been even more acute in 16-19 education than in schools. Between 2010-11 and 2018-19, real terms funding per student in school sixth forms, sixth form colleges, and further education (FE) colleges fell by 16 per cent, from £5,900 to £4,960 – twice the rate that the schools funding fell[5]. This is part of a long-term squeeze. Thirty years ago, funding for 16-19 was around 1.5 times that of secondary schools, it’s now lower.

On Saturday, the government announced a one-year settlement that will see an additional £400m for 16-19 education for 2020-21. Again, this is welcome additional funding (and, as a proportion of per-pupil funding is a faster rise than for schools) but, in real terms, it only repairs around a quarter of the cuts that 16-19 providers have experienced since 2010-11 (with per student funding now 12 per cent lower rather than 16 per cent). In addition, unlike schools, 16-19 provision only has a one-year settlement meaning it is likely to continue to suffer from financial uncertainty.

High needs and wider services

Friday’s announcement provides an additional £700m for high needs – again this is a one year settlement for 2020-21 and again, there will be questions about how money is distributed as well as the overall level.

We now have more pupils with special educational needs and disabilities (SEND) in schools and colleges than before, some with more complex needs. For a range of reasons (including relating to funding and accountability), mainstream schools are struggling to provide adequate support for pupils with SEND.

If the additional £700m is held flat in real terms it will mean that by 2022-23 the overall high needs budget will be some £600m short of what is required according to the Education Select Committee.

In addition, a large proportion of funding allocated through the High Needs Funding Formula is based on historical spending patterns, meaning that a pupil in one local authority could attract significantly more or less funding than a pupil in another authority, despite having similar needs. Local authorities also have limited flexibility to transfer money from the schools to the high needs block.

What’s more, even more than for other groups of pupils, our thinking needs to go beyond funding for schools and colleges when we consider those with SEND.

Children with SEND – and their families – are also often reliant on support from other public services, in particular health and social care. However, these have also faced financial pressure. If children and families are not receiving the support they need from other services, it is harder for them to thrive at school; and schools will find it more difficult to meet their needs.

The number of referrals to specialist children’s mental health services has also increased rapidly in recent years – up 26 per cent over five years despite a population increase of only 3 per cent. At least 55,000 children – one in four – referred to specialist mental health services were rejected in 2017/18. The most common reason for referrals being rejected was that children’s mental health conditions were not serious enough to meet the eligibility criteria for treatment. Among those excluded by threshold criteria were young people who had self-harmed or experienced abuse.

We need to see how the spending round affects these areas to get a real understanding of likely impact.

Conclusion

Schools and colleges will of course welcome additional investment and there is no doubt that the increases announced over the past few days are significant. But, as ever, we need to look beyond the big numbers, and wider than the education budget, to see the real impact on young people in England.

The system still has several years of managing the effects of funding cuts ahead. The scale of increases is going to vary across different schools and, for individual schools, this announcement only guarantees a funding increase in line with inflation, rather than a reversal of cuts.

Those schools that have historically been ‘underfunded’ will see the largest increases. That’s likely to mean that additional funding will be disproportionately directed towards the least disadvantaged schools with the least challenging intakes, at a time when progress in closing the attainment gap has stalled and may be about to go into reverse. Schools with high levels of disadvantage are also likely to feel the greatest cost pressures resulting from increases in teacher pay.

Increases in the number of pupils with complex special educational needs and disabilities has put pressure on school and local authority budgets in recent years. Additional money for SEND is welcome, but questions remain about how it is distributed. Pupils in one local authority can attract significantly more or less funding than a pupil in another authority, despite having similar needs.

The Prime Minister needs to address this if he genuinely means that all children should receive a good education regardless of where they are growing up.